Problems in Sight - VAT

Another point on the subject is the charge of VAT (19%) on
commercial rents - not clear what it means and how it will
be implemented and what happens to the rents agreed prior to
the new measure (if those will be charged as well).

The E.U. is placing pressure on the Cyprus
Government to introduce the VAT (19% charge) on
building plots and development plots on the
acquisition price. The matter is under discussion at
the House of Parliament, but it seems that there is
no way out and the E.U. is threatening us with
penalties which could amount to several millions if
we do not introduce this measure very-very soon.

This will upset the real estate market which has just
started to revive and concerns are expressed from all
directions. If (it will) the measure is adopted it means
that building plots will cost another 19% on the purchase
price. This could be “OK” if the buyer is a VAT payer, but
most buyers are not, especially those who buy the plot for
their own use etc. The Government claims that discounts have
already been made to counterbalance this, such as the
property taxes (abolished from 2017) and reduction of
transfer fees (by 50%) so this new tax has been met with
counter discount measures. It is not as easy as that however
dear readers and it will create serious problems to buyers,
reducing thus their demand, whereas financiers will have a
serious problem in trying to dispose the swap deal
properties and those which they are in their possession
trying to sell them and this in addition to the added
difficulty to sell under normal conditions. It’s one of the
few occasions that “we must do something about it” but then
this measure was supposed to be introduced several years
ago, but the Government succeeded to secure postponement
(mainly due to the bail in etc). We do not expect that new
apartments/commercial developments will be particularly
affected in terms of demand, since developers mostly pay
VAT, so it is a charge that they can discount. The matter
gets more confusing as discussions in the House proceed
however. It refers to non VAT charge for private owners who
sell building plots, but on an occasional basis, not as a
business and their sales do not bear VAT. So two plots next
to each other might have a different cost one by a developer
and one by private individual. Also the measure does not
refer particularly to building land (we don’t know if it
covers the development land as such) since it refers to
building plots (not clear as yet).

Another point on the subject is the charge of VAT (19%) on
commercial rents - not clear what it means and how it will
be implemented and what happens to the rents agreed prior to
the new measure (if those will be charged as well).

A mess indeed dear readers and for those of us who follow
the discussion at the House, it is more like of a chess
game. Every move to by-pass this taxation/ reduce the VAT,
is met by other demands from the E.U. etc etc.

Another point to consider is the visa/passports measures
that we have and for which Cyprus has been so successful in
attracting foreign buyers and investors in excess of €3 bil.
in real estate. The recent report by Bloomberg (in addition
to the E.U. warnings) has made a lot of damage accusing
Cyprus more or less for laundering of money, that we
encourage Russians to invest (low tax etc) and it is evident
for us that this is an orchestrated effort to hurt the
Russian investors (no mention to Europeans, international
western Cos etc who benefit the same and refer that these
measures benefit by 50% the Russians). We get scared because
Europe feels that Russians are still an enemy and it seems
that the second world war hostilities are not over yet and
Cyprus must be punished for its friendly relations with
Russians – an example is the Bail In for Cyprus targeting
primarily the Russian depositors and no such measure was
undertaken for other countries such as Italy, Greece,
Portugal etc which have still a similar problem as we did in
the past. Also, this measure/no reaction by the E.U., when
the millions of Russian deposits which were in Cyprus were
left for other destinations such as U.K. and Germany where
they were most welcomed. In addition, there are in place
similar passports measures, as well as that of the visas in
most European countries with no reaction – only for Cyprus.

One wonders at the end if it is worth remaining in the E.U.
and we could consider this if we did not have the political
problem. We have no support from the E.U., we contribute to
the E.U. more than we get, whereas the needs of the small
countries are not taken fully into account by the larger E.U.
countries.